Treasury Pumps $3.8bn More Into GMAC
The U.S. taxpayer now owns a majority interest in GMAC Financial Services, which this week received a capital infusion of $3.79bn from the US Treasury Department. The latest government-led effort to bolster GMAC's capital base comes as part of a year-end effort to close a capital shortfall, per government stress tests conducted in May 2009. The additional aid means that the U.S. goverment now owns 56 percent of GMAC, totaling $16.3 billion. Much of the aid comes as the financial services giant continues to reel from mortgage losses in its Residential Capital (ResCap) unit. ResCap has lost $2.7 billion through the first three quarters of 2009, and lost $9.96 billion in 2008 and 2007. "By protecting the financial performance and strength of our core automotive finance operations, we expect to increase the pace at which we can fully repay the U.S. taxpayer," said GMAC CEO Michael Carpenter, in a statement. "These actions will also allow GMAC to pursue strategic alternatives for ResCap and the mortgage business." Among those strategic alternatives is a potential sale of the business to investment titan Warren Buffett, according to a New York Post report from Dec. 24 that cited unnamed sources. Buffett is alleged to hold a large debt position in ResCap, according to the report; and while GMAC is largely insulated from ResCap's debt, the ailing mortgage lender and servicer's continuing losses are a direct drag on GMAC's earnings. With the latest government investment, GMAC said it now meets the capital buffer required under the Federal Reserve’s Supervisory Capital Assessment Program (SCAP). In May 2009, the Fed had instructed GMAC to raise $9.1bn in capital. The Treasury then purchased a $3.5bn stake in GMAC, leaving $5.6bn to go. Since then, GMAC, the Fed and the Treasury negotiated new issuances, including the latest $3.79bn. In an effort to make up the remaining $1.81bn in required capital, GMAC announced plans to write-down roughly $2bn of mortgage assets at ResCap. According to the plans, GMAC will reclassify some international assets and businesses from held for investment (HFI) to held for sale (HFS), charging $1.3bn before taxes. As of the end of September, these assets had an unpaid principal balance of $2.4bn and a net of allowance for credit losses of $2bn, the company said. "These decisive balance sheet actions and resulting capital infusions are intended to minimize the impact on GMAC and Ally Bank of any significant future losses related to ResCap's legacy mortgage business," Carpenter said. Nonetheless, GMAC also said it does not expect to absorb further substantial losses from ResCap's operations, but did not specify if those expectations were based upon a planned sale of the company or a turnaroud in ResCap's operating fortunes. Write to Jon Prior.